Cliff Effect

With the support of the Indianapolis Foundation (a CICF affiliate), the Indiana Institute for Working Families (Institute), a program of the Indiana Community Action Association (IN-CAA), is working with National Center for Children in Poverty (NCCP) to illustrate the “cliff effect”—the benefit “cliff” that occurs when even a $0.50 increase in hourly wages leads to the complete termination of a benefit, and a dramatic net loss of resources. The unintended consequence of this design either leads to a disincentive towards economic mobility, or leads to a situation in which the parent or guardian is working harder, but is financially worse off. The report is modeled after NCCP’s “Making Work Pay” reports —also sponsored by the Annie E. Casey Foundation. This report will be the first of its kind to use the Indiana specific Self-Sufficiency Standard.

Most often the single greatest barrier to self-sufficiency for low-income individuals is the “cliff effect.” Eligibility for work support programs such as Supplemental Nutrition Assistance Program (SNAP), and Child Care Development Fund (CCDF) are based on income. Generally, eligibility for these programs is below 200% of the FPG, with benefits phasing out as earnings increase. The unintended consequences in this design mean that an increase in a family’s income can significantly set back a family’s goal towards economic self-sufficiency.